MARKET SUMMARY 02-04-2022
The US dollar sank this week, losing just under 2%. The implication is a weaker dollar is generally supportive to commodity prices. That was evident this week as many gravitated into new contract highs, including soybeans, soybean oil and soymeal. The dollar, along with adverse crop production weather in South America this past week, are supporting higher grain prices. Cattle futures also strengthened into new year high prices, as did dairy where expectations for strong demand for both of these commodities is expected to remain strong.
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CORN HIGHLIGHTS: Corn futures finished the day on a firm note, gaining 3-3/4 in March and 5-1/2 cents in December. For the week, March corn lost 15-1/2 cents, closing at 6.20-1/2 and December gained 4-1/4, closing at 5.73-3/4. Bear spreading was noted for the week as traders were exiting near-by futures and buying deferred contracts. Additional ethanol supplies were noted this week, keeping the front months under some pressure as demand for corn grind may lessen. Note also, prices rallied sharply at the end of last week, which implies this weak pull back is partially over emphasized.
New crop corn prices found support late in the week, as the ratio of November soybean futures price divided by December corn futures price is favoring soybeans. This implies, of course, more acres for soybeans and support for the price of new crop corn. February will be a critical month for price discovery, as it will determine insurance levels and potentially set the tone determining acres. Looking ahead, and perhaps even more critical for prices will be South American weather for first crop maturity and second crop planting. Depending on how this unfolds could determine if prices have topped or just getting started in a bigger bull run. If weather adversity exists, expect end user buying to become aggressive, both domestically and for U.S. exports. This could create a reversal to forecasted exports by the USDA. In January, the USDA lowered anticipated exports due to end users not aggressively buying. Our thinking is that importing countries knew the US has plenty of corn for exports, but would rather wait for availability of southern hemisphere corn, as it will likely be cheaper. Recent challenging southern hemisphere weather is creating tighter world supplies. Don’t be shocked if export expectations for US corn rise on future USDA estimates.
SOYBEAN HIGHLIGHTS: Soybean futures firmed again today to close 9-1/4 cents higher in March at 1553-1/2 and November new crop added 3 cents to end the session at 13.95-3/4. March futures added 83-1/2 cents for the week, while November added 44-1/4. Support for price came from several areas including a weaker U.S. dollar export, higher energy prices, and short covering.
It has been an explosive run for soybean prices the last three weeks, gaining over 1.75 as futures prices factor in losses in the southern hemisphere. Continued strong gains in the energy complex is spilling over into the soybean oil market as tight world vegetable oil supplies may need to be rationed between the use of energy and/or food. Forecasters appear somewhat aligned with conditions for the southern regions of Brazil will remain on the drier side into mid-February. This may likely continue to provide support as prices reach higher to curb demand.
WHEAT HIGHLIGHTS: Wheat futures posted double digit gains on renewed fears surrounding the possibility of a Russian invasion of Ukraine. March Chi gained 11-1/2 cents, closing at 7.63-1/4 and July up 9-1/2 at 7.61-3/4. March KC gained 16-3/4 cents, closing at7.85-3/4 and July up 16 at 7.90-3/4.
Yesterday’s export sales data for wheat at only 2.1 mb was the second lowest of the marketing year. Export demand has been slow because US prices are still too high. In spite of these facts, (and a week-long downtrend) wheat was able to rally today. This in part appears to be due Russian invasion fears rising once again. The White House stated that they have reason to believe Russia may stage a false flag attack by Ukraine, which would give them a reason to invade. In addition, Vladimir Putin was seen with Chinese president Xi Jinping; it was reported that the Chinese leader is backing Russia. They stand in opposition of the US and the west, opposing NATO expansion and US interference. In other news, Paris milling futures were also higher today. On the weather front, the US southern plains are expected to remain dry for some time. The US dollar has turned lower vs a week ago, which may have aided the rally in wheat today.
CATTLE HIGHLIGHTS: Cattle futures finished the session mixed in lack-luster trade, with February gaining 45 cents on the session, closing at 142.05. For the week, February live futures added 3.35, closing at new contract highs. Feeders ended with loses of 20 to 62 on the day, with March leading the way lower, closing at 166.10. However, for the week, the March contract bolted forward adding 6.475, closing in line with prices from three weeks ago. Demand across the meat complex and a lower US dollar are sighted as primary reasons for higher prices this week.
Continued expectations for consumer demand as Covid cases decline, coupled with a healthy export market and winter weather in large parts of the US this past week were also sighted as supportive factors for cattle prices. A drop in the US dollar index this week coupled with firmer energy were also considered supportive factors for commodity prices where broad based buying from manage money was noted. Cutout values near 280 on choice and 276 on select cuts underpin both the live and feeder market. From a long-term perspective, expectations for steady or smaller herd in 2022 are expected to also bring support to cattle prices.
LEAN HOG HIGHLIGHTS: Hog futures posted gains today in the face of overbought conditions. Cash is supportive and momentum is carrying prices higher. February hogs gained 0.575, closing at 87.02-1/2 and April was up 1.700 at 100.075.
April hog futures were able to close above the 100 dollar mark today – a encouraging sign. The CME lean hog index was also up 0.04 at 83.33 (and up 3.58 from last week). Yesterday’s export sales of 30,400 mt (with about a third going to Mexico) were not bad. The winter storm this week likely interfered with the ability to process hogs as slaughter is running lower than last week and last year. The projected slaughter today was 462K vs 474K last week. Overall, slaughter pace is returning to normal, though supplies are expected to tighten throughout the first half of the year. Packers bid up to obtain hogs which should help support the market.
DAIRY HIGHLIGHTS: The milk market finished a choppy week of trade on the right foot with steady double-digit gains on Friday. A strong turnaround in the spot cheese price is leading the charge to higher milk prices. The spot cheese block/barrel average has now closed higher for sevens sessions in a row after falling lower for nine in a row before this rally. Blocks added 2c on Friday to $1.90/lb, while barrels added 4.25c to $1.8950/lb. There were 5 loads traded total. An up day of 22c to 41c in the nearby class III contracts brings milk green for the week. The now second month March 2022 contract added 31c total and closed up at $21.66 per cwt. April added 36c this week and closed at $21.80 per cwt. Over in class IV, it was another steady week of trade. Spot butter closed the week up at $2.50/lb, while powder closed at $1.8325/lb.
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Author
Brandon Doherty